SWISS GLASCOAT EQUIPMENTS LTD - Enjoying Double Benefits

Market Price: Rs.100/-
Listing : BSE
BSE Code: 522215
Market Cap: Rs. 50 crore
Equity Capital : Rs. 5 crore
FV: Rs. 10/-
Book Value: Rs. 45.3

        

         Swiss Glascoat Equipments Ltd (SGEL), a Gujarat based company is engaged in the manufacture and sales of Glass lined equipments and spares. SGEL is the third largest glass lined equipment manufacturer in India after US based - GMM pfaudler Ltd and French firm DeDeitrich. (Out of this two companies, GMM pfaudler is the only listed  company on the stock exchanges.) Earlier the second largest company in Glass lined equipment Industry in India was Hyderabad based NILE Ltd. In 2011, NILE sold its unit to De Deitrich. Swiss Glascoat Equipments Ltd enjoying a double benefit as competition reduced on account of one of the major competitor exited from the business and at the same time user industries including Pharma, Agrochemicals and Food processing industries are registering a hopeful double digit growth. 

         SGEL having over two decade experience in the industry. Its Glascoat product range comprises of both Ready made and custom built equipments.   The company's ability to deliver products in a timely manner to its customers as well as design and development of innovative products are excellent. Major pharmaseuticals and pesticides companies from domestic and international front including Bayer cropscience, Syngenta, Teva, Mylan, Glenmark, Divis lab, Aurobindo Pharma and Shasun are few of the customers of the company.  SGEL having regular dividend paying track record, which is slightly increasing YoY basis in line with the company's growth. Last financial year the company paid a dividend of 25% against 22% paid in the previous FY. 

         The company's major products, Glass lined reactors, lined  storage tanks and columns and blenders are widely using in pharma and pesticides  industries. Generic pharma sector, were as leading Indian Pharma companies have strong presence accounts about 25% share in globally with an expected 12-14% CAGR for the next couple of years. As per the reports, Indian Pesticides and Food processing Industry too  going to register an amazing 14 to 16% growth in the next five years, these all are expected to rise sales of the SGEL. 

          Due to the Global economic slowdown started in early 2007, almost all companies were deferred their Capex which adversely affected the capital goods industry. Even in this period SGEL reported a slow but steady growth in the domestic and export markets. Its sales increased from Rs. 35 crore in 2007 to Rs. 76 crore in 2014. At the same time NP increased from Rs. 1.5 crore to Rs. 3.8 crore. With a small equity capital base of Rs. 5 crore, TTM EPS stood at Rs. 8.65. At the prevailing market price ( which recently surged in a big way) of Rs. 100, TTM PE is 11.5Xs. The company reduced its debt to Rs. 13.5 crore in the FY ended March, 2014  from Rs. 19.9 crore in the previous year. 
                
           At a first look it seems that the company's promoter holding declined to 35.7% from 43.5% during the last year. But its is because of one of the promoter with 7.06% stake re-categorised as non- promoter. We expects the company going to register above its earlier growth rate in line with the user industry's growth. Reduction in interest rate on cut down debt, more over softening commodity prices would boost the bottom-line.  Despite a recent sharp rally in its stock price, we feel SGEL gives a good medium term investment opportunity.

RPG LIFE SCIENCE LTD :- Keep an eye on it.

Market Price:  Rs. 91/-

BSE Code: 532983

FV/ Shares: Rs.8/-

Market Cap: Rs. 152 crore

Promoter Holdings: 61.83%

      Perhaps it may not be prudent if giving positive views on a Pharmaceuticals Company, particularly a part of infamous for wealth creation to their Share holders,  which reporting stagnant financials since the past several years and suffering from a warning letter found from the USFDA (US Foods and Drugs Administration). I am talking about the RPG group's pharmaceuticals and Biotechnology company, RPG Life science Ltd. Subsequently the partition of the RPG group businesses to RP Goenka's two sons in 2010, almost all companies from the two groups have re-rated (company financials and Stock performance) in a big-way, especially Harsha Vardhan (HV) Goenka's group companies including CEAT Ltd, Summit Securities, Zensar technologies and KEC International Ltd. But still, RPG Life science, the pharmaceutical arm of the HV Goenka's group stands a paradox to it. 

       RPG Life Science Ltd, formerly known as Searl India Lts is engaged in the business of Formulation, APIs and Bio technology segments. It has three manufacturing units; one in Navi Mumbai, Maharashtra and Two in Ankaleswar, Gujarat. As per the FY 2014 balace sheet 62% of the company’s revenue come from Formulation, 22% from APIs and about 9% from Bio technology. The company also undertakes contract product development on the back of strong R&D. Gastrointestinal, Respiratory, Pain Management and Nutritional are the acute therapies and Cardiology, Anti-Diabetic, Oncology and Nephrology therapies are the Chronic speciality therapies' focuses area of the company.

          In May 2013, RPG life Science got a warning letter from the USFDA for violation of current good manufacturing practices at its two plants each at Ankaleswar  and Mumbai. After it got the warning letter from the USFDA, the company have aggressively started corrective actions to meet the regulators requirements. However, normally the estimated time for corrective steps and complete adherence  with the stipulation indicated by the USFDA is two years. Now it is almost over one and half years, we hope that the company will get the approval from the regulator sooner than later. Anyway, the management of the company is full confident about the future functioning of the company. It may be the reason they are sharply increasing their holdings through open market purchase. During the past four quarters, the promoters of the company have increased more than 5% stake from the open market. We have already seen the same type of accumulation in the CEAT Ltd's and Summit securities' counters ahead of its sharp rally on the market.

          Even though the company holdings EU GMP, WHO GMP and TGA, Australia certification for the API facility at Navi Mumbai and UK MHRA certification for Ankaleswar palnt, the warning letter from the USFDA adversely affected the business of the company in the last FY.  For the HY ended September 2014. the company reported a sales turn over of Rs.119 crore and Net loss of Rs. 6.4 crore on an equity capital base 0f Rs. 13.3 crore. 

      To build a strong and sustainable product portfolio, the Company has undertaking a backward integration for Di-phenoxylate and Azathioprine. It has plans to introduce new APIs every year in various key therapist segments. With successful achievement of USFDA certification, the Company plans to penetrate developed  markets with new APIs. However, in the short term there may be some uncertainties about the company's performance, but in the medium to long term growth story is intact. Investors with some patience can consider to accumulate this stock on declines only for medium to long term objective. 

  

PIONEER EMBROIDERIES LTD - Turnaround Story

Pioneer Embroideries  Ltd:


Market Price: Rs. 22/-
BSE Code: 514300
FV: Rs. 10/-
Equity Capital : Rs. 17.7 cr
Mrket Cap : Rs. 39 cr
FY- 2014 Sales: Rs.280 cr.

               If a company coming back into the black from the verge of closure should be highly appreciated, Pioneer Embroideries Ltd (PEL) deserves all its glory. As agreed in the CDR package, now the company is settling its defaulted dues to various Banks and Institutions as OTS (one tine settlement) by one-by-one. Its financial performance , particularly in the net level improving considerably. The industry growth, which engaged the company also looking well, we foresees a bright future of PEL in the medium  term.

       

                 Pioneer Embroideries Ltd is India's largest manufacturer - exporter of Embroideries, Bobbin laces, Raschel laces and other garment accessories. PEL owns the No. 1  retail brand Embroidered clothings named "Hakoba".  The company have seven manufacturing units spans 5 states from Tamil Nadu to Haryana. Apart from the domestic sales PEL exports its products to Latin America, North America, Europe, Africa and the Middle East. 

     The company's top-line growth is satisfactory since the past decade and unfortunately its bottom-line is not so. In 2008 (up to 2008, PEL having a regular dividend paying track record), to meet the financial requirement for setting up a Dope Dyed Polyester Yarn (DDPY) division, the company had issued FCCBs for $30mn, which were proposed to convert into shares but not happened that because of the sharp fall in its share prices on account of the Global financial crisis. (In fact just $2 mn converted in 2008, $16 mn restructured in FY 2014 and $11 mn was pending). Recently, the company had bought back the remaining FCCBs. It has settled the defaulted dues with ICICI bank by one time settlement. As per the CDR package instruction, in March, 2013 the promoters of the company  had subscribed 1651978 shares at Rs. 21.22 per shares and another 3125948 shares at Rs. 19.77 per shares to aggregate  Rs. 9.7 crore. Last week PEL has completed the OTS with State Bank of Patiala. So it is clear that the company management is confident with the company's overall growth in the coming years.

      The company's Dope Dyed Polyester Yarn (DDPY) division's performance is continuously improving. Last financial year ended march 2014, the compny's DDPY division surpassed its sales target with a 21% YoY growth. But the bottom line was pitiful due to a large out go of interest. In FY 2014, PEL has reported a sales income of Rs. 280 crore and net loss of Rs. 7 crore after considering an Interest out go of Rs. 16 crore and depreciation of Rs. 11 crore. For the HY ended September the company's sales improved to Rs.  136 crore against it reported Rs. 132 crore in the previous year. At the same time its NP, with the help of Rs. 5.5 crore other Income, reported at Rs. 1.73 crore. The same period of the last financial year NP was reported at Rs. 3.77 crore, including an other income of Rs.11 crore. Finance cost reduced considerably in the first HY of the current FY. We believe the trend will continue in the coming quarters, once it fully settled the dues as per the schedule and arranged the low cost fund. We hope that the company's financial performance, especially in the bottom-line will considerably improve in the future and it would reflect in its stock price too.

Cybertech Syetems & Software - Results Update

Cybertech Systems & Software Ltd: Q2 Results - Update

         On October 29, we have given a positive view on Cybertech Systems, when it was at Rs. 42/-. After two weeks the  stock touched a high of Rs.74/- and closed by 10% lower at Rs. 63/-, thanks to a not so good  second quarter  financials. On a consolidated basis its top-line fell 10% and bottom line slipped into red. What we understand is increased expenses on employee addition and other expenses too caused to report a ( profit after Interest but before exceptional items ) loss of of Rs. 33 lakh against a profit of Rs. 1.84 crore on sequential basis.  Despite a dismal financial results, we hopes that all positive circumstances are there to improve its performance in the future. Also we can keenly track the movement of the management, especially if they increasing their stake. 

DONEAR INDUSTRIES LTD : Truly undervalued stock

Donear Industries Ltd:

Industry: Textile - Fabric/Ready made Garments

BSE CODE: 512519

Market Price : Rs. 20/-

FV / shares: Rs.2/-

Market cap: Rs. Rs. 102 Crore

Sales (FY - 2014) : Rs. 480 crore

         Even though numerous Textile companies in the lower end of the Industry trading inexpensive valuations,  the story is entirely different about the companies those who all are having strong brands and nation wide presence. We know the  market valuation of companies like Page Industries ( in fact  user of an international brand - Jockey), Kewal Kiran, Lovable Lingeries, Rupa & Company Ltd and Maxwell apparels...the list longs. At this situation we need to a close looking at a Micro cap company - Donear Industries Ltd. The company having over  three and half decades experience in the Textile Industry with fabulous track record of Product innovation, Capacity addition, Dealer & distribution network widening and Brand building.

          Donear Industries Ltd is engaged in manufacturing of medium and premium category fabrics like suiting, Trousers for Menswear and Women wear. Its manufacturing facilities are located at Silvasa, Surat and Dadra nagarhaveli. The company  offers garments under the brands Donear Suiting, Donear Royal Classico, Donear Gift4U, Donear Soft&Smooth..etc. Its brands includes top six brands in India. Donear having a presence of 29 states and 7 Union Territories in India with around 300 wholesale and 12000 retail distributors. It exports to 28 countries. 

         Promoters of the company holdings 75% of the equity capital and 15% held by  four  reputed FIIs - Merrill Lynch, City group, Mavi Investment Fund ( part of UBS) and Lotus global Investment. 

         As per the last full-financial year statement, out of the Rs. 480 crore revenue reported by the company, 89% comes from fabric, 8% from garments and rest from yarns. While the domestic sales grew by 18% (YoY) its export increased by 45%. Last financial year the company reported a NP of Rs. 3.73 crore after considering depreciation of Rs. 22 crore and Interest of Rs. 29.5 crore. With a  Rs. 10.4 crore equity capital base it reported an EPS of Rs. 0.72. The first quarter of the current financial year ended June 2014, its  sales reported at Rs. 130 crore with an increase of 30%. At the same time NP increased from Rs. 1.44 crore to Rs. 3.96 crore. First quarter EPS stood at Rs. 0.78, ie, more than last full year. 

        Huge interest payment, because of it needs lot of working capital is the major reason of the poor bottom line performance of the company. The promoters were off to timely increase the equity capital base is a draw back. Textile Industry is a highly labour intensive and various schemes like TUFS, from central and some state Govt incentives for the sector will intensifies the competition in the Industry. However, Donear can overcome the competition through its top quality, strong brand and dealer and distribution network.

       With consumerism, rising disposable income and organized retail sector growth are major growth drivers for the company. The proposed hike in FDI in the Multi brand retail will bring greater investment in the entire value chain. 

      We believe that the stock deserves much higher valuation from the existing levels considering the fundamentals of the company and market fancy of the Industry moreover four reputed FIIs having considerable stake among the floating stock. 

Discalimer: I/My dependants have no vested interest in the above mentioned stock.

SRIKALAHASTHI PIPES LTD

Srikalahasthi Pipes Ltd:

Market Price: Rs.78

BSE Code: 513605

Equity Capital: Rs.39.76 cr

       Srikalahasthi Pipes Ltd (formerly known as Lanco Industries  Ltd) is now a part of  kolkota based Electro Steel  Castings Ltd. The company is located at kalahasthi at Thirupathi. The company is the largest D I pipe manufacturer in the South India. Srikalahasti's main product, i.e. D I pipes are  widely used in Water and sewage sectors. Public Water Boards and several water infrastructure projects are the major customers of the company.

        The company having mainly three units as Molten metal/pig Iron, D I pipes and a mini cement unit. It is also having a  12 MW waste heat recovery based captive power plant too. In 2003 the company's DI pipe capacity was 9000 TPA, which has been gradually increased.  After the ongoing Rs.100 crore capital expansion, the company's D I pipe manufacturing capacity would be increased to 50000 TPA,  along with this certain balancing facilities which includes enhancement of blowing capacity in MBF and additional furnace. In addition to this the company is going for an expansion for Rs.325 crore for smaller Dia Ductile Iron Pipes segment which is expected to completed by FY- 2016.

          Company's operational efficiency is astonishing. Energy conservation is a continuous activity of the company. Its captive power plant running over 100 % capacity. Its Sinter plant has been operational in the last fiscal replaced lump ore with Iron Ore, which reduced the manufacturing cost significantly.

The Union Minister for Water resource Sri. Uma Bharti last Friday said that  that irrigation facility in all agriculture land in India would be available within 10 years. The commitment of the New central Govt  in the area of water infrastructure project giving immense growth opportunity for the company.

            The company's financial performance is very impressive. Despite a capex of Rs. 100 crore under going, the company reduced its long term and short term borrowings by almost 5% in the first half year ended September 2014. Capacity expansion would help to improve the top line and bottom line of the company in the coming years. For the first HY ended September 2014, the company's turnover slightly slipped to Rs. 475 crore from Rs.485 crore. At the same time NP jumped to Rs.31.2 crore from Rs.13.2 crore. Half year EPS is Rs. 7.84. After the completion of the expansion we expect the company's turnover and net profit would increase significantly, especially the company having sufficient order backlog. We feel this stock carry low risk with decent capital appreciation chance in the medium term.

Disclaimer: I /my dependents have no investments in the above mentioned company.

RESULTS UPDATE - Nilkamal Ltd

               I have recommended Nilkamal  Ltd at Rs. 330/- on my "Diwali Recommendation" list.  Unfortunately this stock (perhaps the only stock from my investment list)  not performed well ( forgot about it touched over Rs.380/- after my recommendation). Due to a fall in crude oil prices and  a reduction in the company's debt, I expected it would register a better result for the  September quarter. Nilkamal has reported a sales income of Rs. 460 crore in September quarter against Rs. 423 crore registered in the same quarter of the previous year. Against my view, its raw material cost increased to Rs. 186 crore from Rs. 147 crore.  Mainly, high raw material cost  caused  a fall in its NP to Rs.6.9 crore from Rs.12.5 crore. However the result shows a marginal improvement from the June 2014 quarter. Still I suggest the investors to HOLD the stock for better return as the raw material cost benefit may get in the coming quarters and still Nilkamal capable to deliver an EPS over Rs. 20/- in the FY 2014-15. When we considering the valuation of plastic moulded products industry in the market it is better to stay invested in the stock at least  for the time-being.